Biomass plant already affecting monthly bills

Published: Sunday, November 25, 2012 at 6:01 a.m.

Last Modified: Sunday, November 25, 2012 at 6:29 p.m.

Roughly one year before the biomass plant is scheduled to go online, the 100-megawatt power station is already affecting monthly bills as Gainesville Regional Utilities builds up a fund intended to cushion against the plant’s future rate impact.

The city’s hotly debated decision to build up this fuel adjustment “levelization” fund — to approximately $18 million this fiscal year and almost $22 million by October 2013 — has meant holding the line on electric rates this year instead of lowering them at a time when the utility is experiencing declining fuel costs.

The amount of money flowing into this fund, and what that translates to in monthly bills, fluctuates from month to month based on factors such as the utility’s fuel costs and total customer electric usage.

For October, some $2.4 million flowed into the fund, which translated to a cost of $14.92 for every 1,000 kilowatt-hours of usage.

That is more than the $10.56 per 1,000 kWh that GRU is trying to limit rate increases to in 2014 after the plant comes online.

A review of GRU’s monthly fuel adjustment charge reports shows that the impact of this levelization fund on monthly bills tends to vary. The impact on a monthly bill was $6.73 per 1,000 kWh in September and $7.36 in August.

In some months when total electric retail sales are down, GRU draws money from the fund. That was the case in May when GRU withdrew $1.1 million.

The levelization fund is built up from the same fuel adjustment charge portion of customers’ bills that expenses for the biomass plant will be collected through.

Diane Wilson, GRU’s senior marketing analyst, said the fuel adjustment charge ordinance dates back to 1985 and a levelization fund has been in place for years “to level out the spikes” in fuel prices.

Such a fund is not unique among municipal utilities. Jacksonville’s utility, JEA, has a similar fuel reserve fund and a target of collecting 15 percent above actual costs, said Brian Roche, JEA’s director of financial planning, budgets and rates.

GRU numbers show that the amount in the fund has fluctuated widely over the last decade.

In early summer 2005, the fund was almost $7.3 million. When fuel prices spiked in 2008, the fund was drawn down and had a negative balance of $7.8 million at one point.

The fund has now been on a fairly steady rise over the last 2½ years.

The current GRU and City Commission plan to build up the levelization fund to help cushion the rate increases when the biomass plant comes online has been a point of contention among biomass opponents, who argue that the city has violated its own ordinance by routinely charging customers above the utility’s actual fuel costs.

Under the Florida Administrative Code, an investor-owned utility could be called before the Florida Public Service Commission if the fuel adjustment charges collected from customers were more than 10 percent above or below actual costs.

As a municipal utility, GRU is less strictly regulated by the PSC and has an informal policy of collecting no more than 10 percent above actual fuel costs. With electric fuel costs at some $105 million this year, the projected $18 million levelization fund already exceeds that threshold.

The city’s ordinance states that the levelization fund should be set at zero unless the City Commission determines that the fund has to be built up to “offset fluctuation” in the fuel adjustment.

In a July email to City Commissioner Todd Chase, GRU’s attorney Shayla McNeill wrote that, in her legal opinion, the City Commission’s approval of the annual GRU budget included approval of GRU leadership’s financial decisions, such as the management of the fuel levelization fund.

Chase said he feels it is appropriate to use the fuel adjustment charge to build up a reserve as protection against volatility in fuel charges. But he said he feels the city government is misusing the fund as a protection against an increase in costs that is known to be coming down the pike.

“This is clearly not for volatility in prices,” he said. “We are building up this fund by knowingly charging more than we need to in order to alleviate the biomass rate increase for a few years.”

During summer hearings for the fiscal year 2012-13 budget, the other six members of the City Commission supported building up the levelization fund as a protection against a more dramatic spike in prices down the road.

As it stands, the City Attorney’s Office and GRU’s attorneys are working on an official legal opinion about the utility’s use of the fuel adjustment charge and the levelization fund.

“It is a purposeful overcollection but for a very specific purpose and only for that purpose,” City Attorney Nicolle Shalley said.

<p>Roughly one year before the biomass plant is scheduled to go online, the 100-megawatt power station is already affecting monthly bills as Gainesville Regional Utilities builds up a fund intended to cushion against the plant's future rate impact.</p><p>The city's hotly debated decision to build up this fuel adjustment “levelization” fund — to approximately $18 million this fiscal year and almost $22 million by October 2013 — has meant holding the line on electric rates this year instead of lowering them at a time when the utility is experiencing declining fuel costs.</p><p>The amount of money flowing into this fund, and what that translates to in monthly bills, fluctuates from month to month based on factors such as the utility's fuel costs and total customer electric usage.</p><p>For October, some $2.4 million flowed into the fund, which translated to a cost of $14.92 for every 1,000 kilowatt-hours of usage.</p><p>That is more than the $10.56 per 1,000 kWh that GRU is trying to limit rate increases to in 2014 after the plant comes online.</p><p>A review of GRU's monthly fuel adjustment charge reports shows that the impact of this levelization fund on monthly bills tends to vary. The impact on a monthly bill was $6.73 per 1,000 kWh in September and $7.36 in August.</p><p>In some months when total electric retail sales are down, GRU draws money from the fund. That was the case in May when GRU withdrew $1.1 million.</p><p>The levelization fund is built up from the same fuel adjustment charge portion of customers' bills that expenses for the biomass plant will be collected through.</p><p>Diane Wilson, GRU's senior marketing analyst, said the fuel adjustment charge ordinance dates back to 1985 and a levelization fund has been in place for years “to level out the spikes” in fuel prices.</p><p>Such a fund is not unique among municipal utilities. Jacksonville's utility, JEA, has a similar fuel reserve fund and a target of collecting 15 percent above actual costs, said Brian Roche, JEA's director of financial planning, budgets and rates.</p><p>GRU numbers show that the amount in the fund has fluctuated widely over the last decade.</p><p>In early summer 2005, the fund was almost $7.3 million. When fuel prices spiked in 2008, the fund was drawn down and had a negative balance of $7.8 million at one point.</p><p>The fund has now been on a fairly steady rise over the last 2½ years. </p><p>The current GRU and City Commission plan to build up the levelization fund to help cushion the rate increases when the biomass plant comes online has been a point of contention among biomass opponents, who argue that the city has violated its own ordinance by routinely charging customers above the utility's actual fuel costs.</p><p>Under the Florida Administrative Code, an investor-owned utility could be called before the Florida Public Service Commission if the fuel adjustment charges collected from customers were more than 10 percent above or below actual costs.</p><p>As a municipal utility, GRU is less strictly regulated by the PSC and has an informal policy of collecting no more than 10 percent above actual fuel costs. With electric fuel costs at some $105 million this year, the projected $18 million levelization fund already exceeds that threshold.</p><p>The city's ordinance states that the levelization fund should be set at zero unless the City Commission determines that the fund has to be built up to “offset fluctuation” in the fuel adjustment.</p><p>In a July email to City Commissioner Todd Chase, GRU's attorney Shayla McNeill wrote that, in her legal opinion, the City Commission's approval of the annual GRU budget included approval of GRU leadership's financial decisions, such as the management of the fuel levelization fund.</p><p>Chase said he feels it is appropriate to use the fuel adjustment charge to build up a reserve as protection against volatility in fuel charges. But he said he feels the city government is misusing the fund as a protection against an increase in costs that is known to be coming down the pike.</p><p>“This is clearly not for volatility in prices,” he said. “We are building up this fund by knowingly charging more than we need to in order to alleviate the biomass rate increase for a few years.”</p><p>During summer hearings for the fiscal year 2012-13 budget, the other six members of the City Commission supported building up the levelization fund as a protection against a more dramatic spike in prices down the road.</p><p>As it stands, the City Attorney's Office and GRU's attorneys are working on an official legal opinion about the utility's use of the fuel adjustment charge and the levelization fund.</p><p>“It is a purposeful overcollection but for a very specific purpose and only for that purpose,” City Attorney Nicolle Shalley said.</p>